CFPB Goes After Marketplace Lenders

BLOG VIEW: The Consumer Financial Protection Bureau (CFPB) says it is now accepting complaints about marketplace lenders – non-bank mortgage lenders that are online-only operations, such as Quicken Loans, SoFi, loanDepot and Common Bond.

The thing is, the CFPB’s online consumer complaint database is already rife with complaints about marketplace lenders. A quick search of the database reveals more than 150 complaints about Quicken Loans, the oldest of which is dated March 23, 2015, and more than 50 about loanDepot, the oldest of which is dated April 22, 2015.

So, why is the bureau announcing this now?

The bureau appears to be concerned that consumers do not know enough about marketplace lenders and how they operate. As such, it is releasing a consumer bulletin “that provides an overview of marketplace lending and outlines tips for consumers who are considering taking out loans from these types of lenders.”

“When consumers shop for a loan online, we want them to be informed and to understand what they are signing up for,” says Richard Cordray, director of the CFPB, in a release. “All lenders, from online start-ups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”

I think this is great, but… if the CFPB was already accepting complaints about all mortgage lenders previously, then why is it singling out the marketplace lenders now? Are they up to something bad that the American public needs to know about? Or is the bureau simply beating its “complaint drum” in an effort to get more consumers to comment on the activities of these particular lenders?

It’s one thing to say you are accepting complaints about all mortgage lenders and quite another to emphasize that you are accepting complaints about a certain type of mortgage lender.

I think the mortgage industry should be disturbed by this announcement for two reasons: First of all, there is the timing of the announcement. It comes a month after Quicken Loans was (arguably) unjustly criticized for its Super Bowl commercial for its new Rocket Mortgage product, which promises an online mortgage application process that is fast (under 10 minutes) and easy. Critics of this new product expressed concern that it represented a return to the no-money-down, no-doc/low-doc, stated income, interest-only days of lending that led up to the mortgage meltdown and the Great Recession. What these critics failed to understand, of course, is that the loans are underwritten using today’s regulatory standards and thus are nowhere near as risky.

Still, there were those who said the commercial sent the wrong message – that even though underwriting standards have improved, Quicken was still going down the wrong path by making it seem too easy to get a mortgage. This negative publicity almost seemed to be an effort to cast doubt on Quicken’s motives – an effort to rile the public’s now-in-remission mistrust of lenders.

I also think the timing of the CFPB’s announcement is suspect because Quicken Loans is currently facing allegations from the U.S. Department of Justice (DOJ) that it mishandled the underwriting of loans backed by the Federal Housing Administration. I would imagine that consumer complaints would be a substantive “Exhibit A” in such a case. Is this an effort to find and collect more data that could be used to strengthen the DOJ’s case?

The CFPB warns consumers to “be careful about refinancing certain types of debt” using marketplace lenders.

“While some marketplace lenders may advertise lower interest rates, in some cases, consumers could lose important loan-specific protections by refinancing an existing debt,” the CFPB warns in a release. “Specifically, consumers should know that they may sign away certain federal benefits, such as income-driven repayment for federal student loans or servicemember benefits related to debt incurred prior to entering active duty.”

Fair enough. Good for people to know.

The bureau also offers some general steps consumers should take when shopping for a loan, including a loan from a marketplace lender; however, these are arguably the same steps a consumer should take when approaching a bank, credit union, non-bank or any other type of mortgage lender.

I’m not much for conspiracy theories, but it appears that at least some other parties in the mortgage industry would agree with me that the timing of this announcement is suspect: The CFPB Monitor, published by the Consumer Financial Services Group at Ballard Spahr, sees it as I do, a singling-out of marketplace lenders.

“The CFPB’s objectives in taking these actions are questionable, since consumers already could complain about marketplace loans using the CFPB’s existing loan categories,” a post on the Monitor by Scott Pearson states. “Rather than seeking to provide additional protection to consumers, perhaps the CFPB’s primary objective is to warn marketplace lenders that they are clearly on the CFPB’s radar screen.”


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